Moments that matter in a deal: Surviving a crisis - is considering people and culture key?
July 19, 2019
In a series of blogs focusing on the key moments that can make or break a deal, we look at how to turn threats and crises into an opportunity to strengthen the resilience and long-term competitiveness of your business.
Businesses have always run into trouble. But tech disruption has accelerated the speed at which an enterprise that’s prospering now can be rendered redundant. What if a digital competitor moved in and undercut your prices, for example? The number of household names that have gone under or been sold off for a fraction of their previous value in recent years underlines this point.
Four stages of demise
From working with distressed and potentially vulnerable companies, it’s clear that there are four stages that can signal a demise is impending:
- The company is in potential trouble but management aren’t yet aware
- Management are aware of the trouble but key stakeholders such as suppliers, investors and creditors aren’t
- Stakeholders are aware of the trouble
- Stakeholders decide to intervene, such as calling in credit or withdrawing insurance cover
Beyond this point, options for the company become limited, sometimes the only outcome is insolvency.
The good news is that demise is rarely, if ever inevitable, with the options to turnaround the business (e.g. shift in business model) or avert collapse (e.g. restructure or sell as a going concern) increasing the earlier in these stages that management makes a decisive move. How then can you strengthen resilience and chances of success?
Moment one: Lead from the front
The key differentiator between survival and insolvency is leadership. We’ve seen instances where great leaders have taken businesses back from the brink and turned them into success stories. While a renewal in customer appeal and the capabilities needed to make this possible are clearly a part of this, it’s also important for leaders to take hard decisions on costs. When businesses fail, it’s a failure of management.
Moment two: Act early
Awareness of the threats and opportunities in disrupted marketplaces is critical. Even if your order book is healthy now, what could undermine your prospects down the line? If you are already facing a threat, what are your alternative commercial options? For example, we’ve seen instances where the core offering is becoming less relevant, but the distribution network still offers significant potential.
Moment three: Take your people with you
Communicate early and be straight with your staff, including clearly setting out the risks and a compelling vision for the future. We’ve found that distress brings out the ‘hidden heroes’ within a business. These are the people you need to retain and motivate to restore the viability of the business or ensure it is attractive to a prospective buyer.
Moment four: Ensure your people plan is at the forefront of regeneration
The kind of people and skills you need in a crisis are often quite different from business as usual. So, it’s vital to identify the people you need and develop a plan to attract and retain them. Money may not be the only motivator and may indeed be short. In the restructuring following the financial crisis, for example, we found that institutions were able to attract great talent into their ‘bad banks’ as this was seen as good transformational experience to have on their CVs.
Moment five: Treat people with care and respect
This should go without saying, but you still see shoddy treatment such as people being made redundant by text. If insolvency is a possibility, HR should be coming up with proactive plans for retaining key people ahead of possible sale and exploring options for avoiding redundancy (e.g. short-time hours or unpaid leave while refinancing or sale are negotiated), while putting in place training and help with finding a new job for people who will be let go. Working with local recruiters and agencies to help their displaced people get on the front foot shows care and a willingness to support their people at every stage. This could pay dividends in terms of customer loyalty or talent attraction when business picks up.
Seizing the initiative
As we explore further in our Creating value beyond the deal report, what all these moments underline are the importance of early planning with people at its heart. If you want to turn adversity into opportunity, you need to maximise your options and the time needed to capitalise.